25th Feb 2021

Eurozone to Portugal: Sacrifice yourself to save Spain

  • Dark clouds are hanging over Lisbon (Photo: Valentina Pop)

Portugal has been told to apply for a rescue from the EU bail-out fund lest Spain be sucked into the vortex, according to reports in German media.

The European Central Bank and a majority of member states in the eurozone are laying heavy pressure on the narrow Iberian nation to be the third country to tap the European Financial Stability Facility, according to a report based on unnamed sources in the Financial Times Deutschland.

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European leaders and a number of analysts fear that should Portugal default, Spain too would be dragged down. While the debts of Greece, Ireland and Portugal are thought to so far be manageable, Spain would empty the eurozone's emergency piggy bank.

Lisbon is being told that if it applies to the facility, this should ease pressures on Spanish borrowing costs: "If Portugal were to use the fund, it would be good for Spain, because the country is heavily exposed to Portugal," the paper quotes a source as saying.

The country's borrowing costs climbed to near record highs on Thursday, with yields loitering around seven percent for 10-year bonds, while Spain's 10-year bond yields climbed to a record 5.2 percent.

Meanwhile, the European Commission was reported by Die Welt on Friday as trying to convince partners that the €440 billion EFSF needed double the funding, a move immediately rejected by Germany, the EU's paymaster.

Brussels however has denied the report.

Axel Weber, German representative on the ECB board and head of the Bundesbank, speaking in Paris, said that the existing total rescue sum - €750 billion, including €250 from the IMF and another €60 from the EU directly, should be sufficient, but that if not, more guarantees could be found.

"[This] should be more than enough to counter attacks on the eurozone. If it's not enough, then one will have to increase this commitment," he said.

Meanwhile other leaders were insisting that there was no existential threat to the euro, as has begun to be suggested by some analysts.

Luxembourg Prime MInister Jean-Claude Juncker, the chairman of the group of states that use the euro, said he did not fear for the single currency.

And EFSF chief Klaus Regling told German daily Bild: "No country will give up the euro of its own will: for weaker countries that would be economic suicide, likewise for the stronger countries. And politically, Europe would only have half the value without the euro."

"There is zero danger. It is inconceivable that the euro fails."

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